Oscar Health in the eye of the ACA storm

As 2025 closes, the ACA market faces a real stress test. Enhanced subsidies may expire. CMS is rolling out new programme integrity rules that narrow enrolment windows and tighten verification. Many investors see only noise and fragility. We see a filter. Periods like this reward operators that run lean, price with discipline and use technology to remove cost and friction. In our view Oscar Health sits on the right side of that divide after turning profitable in 2024.

We initiate Buy at 22 with a simple thesis on quality and cash generation

We initiate coverage of Oscar Health with a Buy rating and a 12 month target price of $22. Our target comes from forward EV to Sales of 0.20x applied to FY26 revenue of $10.9bn. At a $19 share price this implies about 14.6 percent upside. We choose EV to Sales because revenue best reflects the durability of Oscar’s premium engine and cash conversion at this stage. Earnings are ramping but still moving with policy and risk adjustment timing. Sales capture premium growth across ACA and MA plus platform fees, and they tie well to capital needs in a regulated insurer.

We anchor the multiple to three things we can observe. Oscar is expanding its reinvestment runway in MA and value based care. The firm is showing pricing power and medical cost control in its MLR trend. Earnings visibility is rising as SG&A runs ahead of guidance, which points to operating leverage that is not fully priced. The stock trades near 0.1x EV to Sales versus large cap managed care peers closer to 0.3x. We think a 0.20x bridge is fair if Oscar holds margins and compounders in the group keep their premium.

What the market is missing about Oscar

The debate often stops at headline risk in ACA. We think investors miss the shape of Oscar’s cost curve and the resilience of premiums. 2024 Adjusted EBITDA hit $199.2mn versus a $45.2mn loss in 2023 and losses above $400mn in 2021 and 2022. That is not a small swing. It reflects structural SG&A leverage and steadier medical costs. In Q1 SG&A printed 15.8 percent against full year guidance of 17.6 to 18.1 percent. This shows execution on automation, better broker productivity and fewer member contacts per issue. When SG&A drops while membership scales, you widen the price to value gap versus slower peers.

Medical cost control is also visible. MLR sat near 81.6 percent in 2023 and 81.7 percent in 2024. We model 81.3 percent in 2025 and about 81.0 percent in 2026. Drivers are cleaner membership mix as special enrolment cohorts roll off, stronger risk capture with a $175mn risk adjustment tailwind in 2026, and network optimisation that reduces avoidable use. A combined ratio path from the high 90s today into the low 90s by 2026 looks achievable if these trends hold. In that world cash conversion improves and funding needs shrink.

Why EV to Sales fits the story

Oscar is exiting the early loss phase and entering operating leverage. For such businesses P or E can be noisy and easy to misread. Sales track the recurring premium book that funds claims and overhead. They also capture +Oscar fees that scale with little added cost. In regulated insurance revenue and risk bearing scale drive the return on capital path. EV to Sales lets us compare Oscar to managed care peers with long records of compounding while accepting that margin ramps over the next 24 months.

We benchmark to UnitedHealth, Elevance and Humana on the logic that disciplined pricing, MA expertise and reinvestment depth define the end state Oscar is building toward. We do not claim equal quality today. We claim direction of travel and evidence of leverage already in the numbers. With peers near 0.3x and Oscar near 0.1x, a 0.20x forward level values progress but still embeds a discount for execution and policy risk.

Our forecast that supports the rating

We model revenue of $11.265bn in FY25, up about 23 percent year on year. We then model a modest reset to $10.925bn in FY26 as integrity rules and subsidy changes trim market volumes by 5 to 7 percent. Mix, pricing and risk adjustment offset some of that pressure. We expect Adjusted EBITDA of $340mn in 2025 at a 3 percent margin and $500mn in 2026 at a 4.6 percent margin. This comes from lower unit admin costs, better network rates and the $175mn risk adjustment tailwind. We include $250mn of retention funding to lift persistency and $85mn of M and A and still expand margins, which we think is conservative.

Membership is likely to be broadly flat through 2025 after a strong 2024. Management has flagged lower special enrolment flows under the new rules. We frame effectuated lives around 1.8 to 2.0mn with persistence improving as operations stabilise and the ICHRA bridge deepens employer to individual migration. In 2026 we expect policy tightening to push weaker players to pull back. That should help Oscar gain share while keeping a focus on unit quality over raw volume.

SG&A should keep stepping down as workflow automation spreads across claims, risk and service. We forecast a SG&A ratio of about 16.5 percent in 2025 and 15.2 percent in 2026. Each point of improvement gives price room and supports rational growth. On medical costs we assume stable prior period development and steady rebate exposure, which fits the last two years.

Catalysts that can prove us right

Three things can move the stock toward our target. First, clean execution through open enrolment with SG&A tracking near the low end of guidance would confirm the cost curve. We care about quarterly SG&A print versus the 17.6 to 18.1 percent guide and any sign of further automation benefits. Second, evidence of the 2026 risk adjustment tailwind coming through receivables and collections would support margin lift. We will watch risk adjustment payables and prior period development disclosures for confirmation. Third, early MA traction and +Oscar platform fees that rise as a share of revenue would show that growth optionality is real beyond the ACA book.

Policy can help too. Integrity rules should curb churn heavy acquisition and reward firms with strong onboarding and retention. If the enhanced subsidies lapse at year end 2025, we expect more rational pricing and fewer uneconomic plans. That would support margins and favour operators with data driven pricing and network leverage.

Where we could be wrong

Two risks stand out. Risk adjustment volatility could rise if the rules change or if capture and coding fall short. That would push MLR higher and blunt the $175mn tailwind we model for 2026. If that happened our margin path would slip and the multiple would likely compress. The second is reinsurance dependence. The company uses quota share to meet capital needs. If capacity tightens or pricing worsens, growth can slow and capital flexibility can shrink. That would cap revenue and weigh on EV to Sales.

There are other known risks. ACA competition is intense with national carriers, Blues, provider plans and new tech entrants. As analytics and AI spread, any edge can erode. Consumer preferences can swing to broader networks or different benefit designs that reduce Oscar’s differentiation. Growth can cool as markets mature and policy tightens. Execution missteps in rate filings, benefit design or enrolment operations can hurt membership and margins. Finally, a style shift in markets away from growth and quality toward value can compress multiples even if fundamentals hold.

How we will test the thesis

We will track a few simple markers. SG&A print versus guidance tells us if the efficiency flywheel is still spinning. MLR trend and combined ratio show whether pricing and network optimisation are working. Risk adjustment balances and collections will validate the 2026 tailwind. Net member adds, persistency and the share of ICHRA sourced members will show if growth quality is improving. MA lives and +Oscar revenue will indicate the breadth of the runway. If these markers move the wrong way for two or three quarters, we would revisit our multiple and our target.

Valuation sensitivity and what changes our mind

Our 0.20x EV to Sales multiple is most sensitive to revenue trajectory and visible margin improvement. A sustained 100 basis points better operating margin or a clear ramp in MA membership would justify moving closer to peer midpoints. Persistent MLR pressure, volatile membership or adverse policy moves would push us toward a lower multiple near current year levels. We would change our rating if we saw sustained margin compression, clear share losses in core geographies or a breakdown in cash conversion that forces equity funding.

Bottom line

Oscar has crossed the profitability line and is now leaning into operating leverage. The ACA market is getting tougher, not easier. That is often when lean operators take share. We believe revenue remains a clean anchor for valuation while earnings build. Our model calls for $11.265bn revenue in 2025, $10.925bn in 2026, and Adjusted EBITDA rising from $340mn to $500mn. SG&A and MLR trends support that path. A $22 target on 0.20x forward EV to Sales offers a balanced way to own improving unit economics at a discount to large cap peers. We initiate Buy and we will let the numbers and the policy tape tell us if we are right.